Cash Flow Crisis? Could a business loan help cash flow?

May 23, 2017

According to recent research, only four out of ten small businesses survive longer than five years. One of the major causes of this is problems with cash flow.

A business can be doing very well financially but struggle to meet their overheads because of issues with cash flow. When many of your clients do not pay their invoices until several weeks after they are due, this can have a huge impact on you then being able to meet your financial commitments such as staff salaries, office rental and bills, and supplier invoices. Many businesses have to rely on their overdraft facility or take out a business loan to cover this gap.

If you are constantly in a difficult cash flow position, it’s time to get things sorted. The first thing to do is to produce an accurate cash flow forecast for the next few months. Take a long hard look at everything in the pipeline. When are you realistically expecting to be paid by customers and when do you have to make payments of your own? You may not like what you see but at least you will be prepared!

If there is a particularly difficult period ahead then now is the time to look for some means of extra funding, so that you are prepared in advance. Lenders such as Fair Business Loans that are in touch with the realities of small businesses may be able to provide a business loan to help you get back on track.

Once you have averted any immediate cash flow crisis you then need to ensure that cash does indeed flow from this point forward rather than being held back by various dams along the way!

Here are our six steps to improve your cash flow:

1. Send invoices promptly

The old song “What a Difference a Day Makes” is so true for cash flow! Get your invoices out straight away as a few days delay in you sending an invoice out can make a critical difference in the timing of when you get paid.
Be clear and upfront about payment terms

2. Make it very clear when dealing with new clients - and on the invoice itself - when payment is due.

3.Send invoice due reminders

Again, days matter. Ensure you send a friendly reminder to clients a couple of days before the original due date so that the payment is on their radar. Timing is everything here: too early and you will irritate them, but too late and your cash flow is already being adversely affected.

4. Have robust debt collection procedures

It’s something that no business likes to do but it’s essential that you have procedures in place to recover money that you are owed if the client does not pay after several reminders. You can follow through with letters, emails and phone calls - but also be aware that there is a Late Payments Act that enables you to claim late payment interest and compensation for debt recovery costs. Check out the website Pay On Time for more information and letter templates.

5. Don’t hold too much excess stock

Only keep the stock you need so that your cash is not tied up in this but can instead be used elsewhere in the business.
Negotiate improved credit terms with your suppliers

It’s worth trying to get longer payment terms with your own suppliers so that you have a bit more leeway with the payments that you have to make. This will lessen the impact of any late payments from your clients and make your cash flow easier to manage.

If you follow the above six steps you should see a gradual improvement in your cash flow over the next few months and give your business a stronger chance of survival. If you do need help with funding a cash flow shortage in the short term then do get in touch with us to discuss whether a business loan could be the answer.